For companies experiencing financial loss due to the COVID-19 economic crisis, finding ways to quickly increase cash flow is a top priority. One opportunity to be considered is whether COVID-19 losses incurred in the current year can be moved into 2019 to offset income or to create a net operating loss eligible for the revived carryback provisions.
Under section 165(i), companies experiencing financial loss due to natural disasters may accelerate those losses to the fiscal year immediately preceding the crisis event.
The following are examples of potential losses, if directly attributable to COVID-19, that could be eligible under this provision:
- Inventory scrapped due to spoilage during government shutdown;
- Worthless securities (but not bad debts);
- Closure costs of store and facility locations;
- Complete abandonment of leasehold improvements;
- Permanent retirement of fixed assets;
- Abandonment of pending business deals for costs otherwise capitalized;
- Termination payments to cancel contracts, leases or licenses;
- Prepaid events, travel, conference space, hotel rooms, etc. when taxpayer is not provided a refund or credit;
- Prepaid raw materials or other items to fulfill a contract and the contract has been cancelled;
- Mark-to-market securities; or
- Losses from the sale or exchange of property.